India’s financial tsars are bent on doing the UAE’s gold and jewellery trade favours. In the latest turn, they have raised import duties that retailers in India have to pay from 10 per cent to an even more substantial 15 per cent. (The import duty on bullion remains at 10 per cent)

What this does, as well as the earlier duty increases, is widen the gap between the retail cost of jewellery in the UAE/GCC and what one has to pay for the same in India. Factor in a still weak rupee against the dollar - and by extension the dirham - and the gains multiply for an Indian buying jewellery from here. (In Dubai, a gram of 22K gold was quoting at Dh148.5 (Rs2,552.71) at the opening of trade on Wednesday, while in India it was Rs2,725 a gram. For the record, gold values have dropped more than 20 per cent in the year to date.)

It then stands to reason that if there is a slump in demand for gold jewellery within India as a result of the higher showroom prices, it will be compensated by that demand getting diverted to other markets within a few flight hours. It places the gold trade in Dubai and the GCC at an advantage. Particularly, when the peak demand season - all through the fourth quarter - for Indian gold buying is just about to get into its stride.

“If expat Indians in the Gulf earlier used to allocate at least some of their discretionary spending on gold on purchases within India, the latest hike means there is less of a reason to do so,” said Cyriac Varghese, general manager at Sky Jewellery. “Those purchases will be transferred to stores in the GCC.”

An NRI woman can take Rs100,000 worth of gold to India on a trip to the country, while the man can make do with Rs50,000 worth.

Even without the currency factored in, gold prices in India are 13-15 per cent higher than here on a per gram basis. This comes about because of the higher import duty as well the premium jewellers have to pay to get their hands on stocks. There is a scarcity building up for the metal in the open market as the authorities work overtime to reduce India’s appetite for the yellow metal and thus bring some semblance of normality to the country’s looming current account deficit.

Jewellery chains are feeling the pinch. “The recent policies changes and attitude of the government against gold and the gold industry has made it challenging to run the business in India,” said Shamlal Ahmad, director of international operations at Malabar Gold and Diamonds. “This has led way for a parallel market to emerge in gold and thereby make it difficult for organised retailers like us to compete with small jewellers [in India]. This has forced us to compete with them by reducing our margins drastically.”

There are many versions as to why Indian authorities decided to hike the import duty on jewellery on Tuesday. According to market sources, jewellers in India were sourcing jewellery from markets such as Malaysia to compensate for the scarcity of the metal in recent weeks. This, in turn, was completely at odds with what the authorities were trying to achieve on the country’s gold bills.

What does this mean for the average Indian consumer? “The increase in gold import duty will have a direct implication on the price of the metal in the local market,” said Ahmad. “However this will not curb the demand for gold because it is not just a metal but part of Indian heritage and culture and, more importantly, a belief.

“[Conversely] the increase in gold prices will be considered as a positive sign and the confidence of the customer in gold will increase substantially. Moreover, the wedding season is fast approaching and no matter what the price of gold, demand will soar. No father compromises anything on the day of his daughter’s wedding and gold being a key component will continue to play a key role.”

Moral of the lesson? Indian authorities can only huff and puff in their efforts to dampen gold and jewellery demand. There is just no taking away gold’s enduring value from an Indian’s psyche.